Chiquita Secrets Unpeeled

Front-page stories in today's Washington Post and Wall Street Journal detail the latest news from the a Justice Department probe into Chiquita's dealings with Colombian paramilitaries. According to the Post:

On April 24, 2003, a board member of Chiquita International Brands disclosed to a top official at the Justice Department that the king of the banana trade was evidently breaking the nation's anti-terrorism laws.

Roderick M. Hills, who had sought the meeting with former law firm colleague Michael Chertoff, explained that Chiquita was paying "protection money" to a Colombian paramilitary group on the U.S. government's list of terrorist organizations. Hills said he knew that such payments were illegal, according to sources and court records, but said that he needed Chertoff's advice.

Chiquita, Hills said, would have to pull out of the country if it could not continue to pay the violent right-wing group to secure its Colombian banana plantations. Chertoff, then assistant attorney general and now secretary of homeland security, affirmed that the payments were illegal but said to wait for more feedback, according to five sources familiar with the meeting...

Sources close to Chiquita say that Chertoff never did get back to the company or its lawyers. Neither did Larry D. Thompson, the deputy attorney general, whom Chiquita officials sought out after Chertoff left his job for a federal judgeship in June 2003. And Chiquita kept making payments for nearly another year.

Hills, a former SEC chairman, as well as several other Chiquita executives, are now the targets of a criminal investigation and could be indicted for their part in the scandal. As the Journal reports:

In years past, the admission might have been enough to get Chiquita off the hook. Companies and their executives who reported wrongdoing and agreed to cooperate often have enjoyed lenient treatment. Many received a "deferred prosecution" in which no charges were filed unless they committed additional crimes.

But things didn't work out that way for Chiquita—or for Mr. Hills and some colleagues... The investigation illustrates the recent posture taken by U.S. authorities to prosecute aggressively even when companies turn themselves in for breaking the law. Critics say that strategy could cause difficulties if companies decide they suffer no worse by waiting to get caught.

The case highlights the difficulty of doing business in a place like Colombia, where bribery, kidnapping, and assassination are all too often the tools of the trade. Chiquita executives apparently believed that if they stopped making payments to the AUC, an umbrella organization for Colombian paramilitaries, they would be putting their employees' lives at risk.

The company's internal financial records characterized the money provided to the paramilitaries as "payment for security services." This puts a polite face on things, but doesn't stray too far from the truth. The protection payments were business as usual in Colombia, where paramilitaries demand cash from businesses in exchange for leaving them alone. Chiquita maintains that the arrangement, though illegal, was necessary to safeguard its employees and facilities.

But the Colombian government isn't buying it. According to the Post:

The attorney general of Colombia, Mario Iguaran, and other Colombian officials have dismissed Chiquita's assertions that it was a victim of extortion and paid AUC to protect its workers. An Organization of American States report in 2003 said that Chiquita participated in smuggling thousands of arms for paramilitaries into the Northern Uraba region, using docks operated by the company to unload thousands of Central American assault rifles and ammunition.

Iguaran, whose office has been investigating Chiquita's operations, said the company knew AUC was using payoffs and arms to fund operations against peasants, union workers and rivals. At the time of the payments, AUC was growing into a powerful army and was expanding across much of Colombia and, according to the Colombian government, its soldiers killed thousands before it began demobilizing.

More news to come as the story develops. In the meantime, click here for an earlier post about Drummond's recent legal troubles in Colombia.